The Convenience Yield Implied in the European Natural Gas Markets: The Impact of Storage and Weather

32 Pages Posted: 4 Aug 2016

See all articles by Thomas Reinhard Kremser

Thomas Reinhard Kremser

Vienna University of Economics and Business - Institute for Finance, Banking and Insurance

Margarethe Rammerstorfer

Vienna University of Economics and Business - Department of Corporate Finance

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Date Written: August 4, 2016

Abstract

This paper determines the convenience yield implied in the European natural gas markets and investigates driving factors and according dynamics. For this, we approximate the convenience yield via an option-based approach, in which the convenience yield is determined as the difference between two average floating-strike Asian options written on the spot and futures contracts. In a second step, we fit an exponential generalized autoregressive conditional heteroscedasticity (EGARCH) model to explain the convenience yield via storage and weather as well as other key driving factors. The empirical analysis reveals distinct results for the impact of storage, which indicates that the release of natural gas storage levels generates considerable volatility. Further, we illustrate that the mixed evidence and the absence of a clear pattern to explain the convenience yield's characteristics underline the transitory state of European natural gas markets.

Keywords: natural gas, futures, convenience yield, price volatility, GARCH

Suggested Citation

Kremser, Thomas Reinhard and Rammerstorfer, Margarethe, The Convenience Yield Implied in the European Natural Gas Markets: The Impact of Storage and Weather (August 4, 2016). Journal of Energy Markets, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2818433

Thomas Reinhard Kremser (Contact Author)

Vienna University of Economics and Business - Institute for Finance, Banking and Insurance ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Margarethe Rammerstorfer

Vienna University of Economics and Business - Department of Corporate Finance ( email )

Welthandelsplatz 1
1020 Vienna
Austria

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